### Dividend Payout Ratio Formula & Example

Definition: Dividend Payout Ratio (DPR) is used to measure the extent to which earnings per share have been used for paying dividends to stockholders. A low payout ratio can indicate that a company’s dividend is small compared to its earnings.

Formula:
Dividend Payout Ratio = Dividend per Share / Earnings per Share

Example 1:
TTC Company paid out \$2.10 per share in annual dividends and had \$4.30 in EPS, then the DPR = \$2.1 / \$4.3 = 48.84%. This means that less then half of the companies earnings went to support the dividend payment.

Example 2:
Thomas Ltd. has an annual earning of \$2 million dollars. Total dividends of \$400,000 are to be paid out, and the company has 4 million outstanding shares.

Solution:
Earnings per share (EPS) would be \$2 million in earnings divided by 4 million shares = \$0.50
Dividend per share would be \$400,000 divided by 4 million shares = \$0.10
The dividend payout ratio = 0.10 / 0.50 = 20%

Example 3:
Calculate the dividend payout ratio from the following data:
Net Profit  \$200,000
Provision for taxation \$80,000
Preference dividend  \$10,000
No. of equity shares  110,000
Dividend per equity share \$0.36

Solution:
Earnings per Share = (Net Profit after tax - Preference dividend) / No. of equity shares = (200,000 - 80,000 - 10,000) / 110,000 = \$1

Payout Ratio = (\$0.36 / \$1) * 100% = 36%

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